It’s rare that I take time to highlight a court case as there are very few landmark cases that impact our firm’s daily practice. This week the New York Court of Appeals overturned Bank of America v. Kessler, a case that many foreclosure defense practitioners were following. In the Kessler case, the borrower had successfully argued in lower courts that strict compliance with the mandatory pre-foreclosure notice prohibited any other statements, disclosures, or disclaimers within that notice. This is no longer the case.
In the aftermath of the Great Recession, New York adopted specific pre-foreclosure requirements that lenders must comply with before they can proceed with a foreclosure action. A key requirement can be found in Section 1304 of the Real Property Actions and Proceedings Law (RPAPL). RPAPL 1304 contains specific text that must be included in a notice to borrowers in danger of foreclosure, and provided at least 90 days prior to commencing a foreclosure action. The statute has strict language and formatting requirements for this notice to alert a borrower that this is a serious notice and not an ordinary collections letter.
One important provision is the “separate envelope” requirement, meaning that no other information can be included in the notice or within the contents of the envelope. The purpose of this requirement is so the notice stands out from other correspondence and does not dilute the significance of it. In fact, if a husband and wife are both borrowers on a loan, they must receive separate notices even if they both reside at the same address.
Some lenders have added certain language at the end of these pre-foreclosure notices to avoid issues relating to other state and federal laws. For instance, a bankruptcy disclaimer became common. This disclaimer would inform a borrower that if they obtained bankruptcy relief or are in an active bankruptcy case, that the lender was not seeking to collect (which would violate the bankruptcy stay or discharge order). Other notices would inform a borrower that the notice was from a debt collector (a requirement under the Fair Debt Collection Practices Act). Both of these were included in the Kessler notice, in addition to a notice for military personnel.
The Westchester County Supreme Court ruled that these additions to the mandatory pre-foreclosure notice violated the “separate envelope” requirement and the ruling was upheld by the Appellate Division. On further appeal, the Court of Appeals held that RPAPL 1304 does not prohibit the inclusion of additional information that may help a homeowner facing foreclosure. The caveat is that any additions must not be false or misleading.
While the Kessler appeal was pending, many New York State foreclosure cases were on hold as they had their own questions on whether similar disclaimers would be problematic. In fact, many foreclosure defense practitioners quickly filed motions to dismiss pending cases citing Kessler. We appeared at conferences where we routinely heard that cases were on a “Kessler hold.” Some lenders went so far as to discontinue existing actions and commence new actions strictly complying with the lower court ruling in Kessler.
While disappointing to borrowers and those who defend them, there is now some more clarity on this issue and foreclosure cases will now proceed. This will not stop an experienced attorney from making sure that the pre-foreclosure notice complies with RPAPL 1304. We will make sure it contains all the key words and any additions to the notice are not in any way misleading. Something that could steer a homeowner in the wrong direction or even encourage bankruptcy (which might actually be the best path to cure mortgage arrears) may be problematic even with this new ruling.
Our suggestion to any homeowner who may be facing foreclosure is to contact a skilled and knowledgeable attorney as early as possible. Options to address or defend a foreclosure, or create a plan to cure arrears, are more limited as a case advances. If you or someone you know is struggling to keep up with mortgage payments or have other debt that’s hindering the ability to pay a mortgage, please contact Zimmelman Law PLLC to discuss the best path forward.
Zimmelman Law PLLC
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